Molson Coors says full recovery from NHL lockout unlikely until fall

MONTREAL – Molson Coors said it could take months for the brewer’s sales and profits to fully recover from the body blow sustained as a result of the NHL lockout.

“The impact that it had in the second half of last year is permanent,” CEO Peter Swinburn said in an interview Thursday after the company reported its year-end results.

“Going forward… I would hope that the fan base isn’t affected in any way. I wouldn’t expect it to be, given the popularity of hockey in Canada, so we’re hopeful that things will get back to normal.”

The Montreal and Denver-based brewer said it has seen a pickup in demand since the dispute ended in January, but the full benefit won’t fully resume until the fall because large retailers require up to six months to plan floor space and sales promotions.

Swinburn said the disruption to its main winter revenue driver had an obvious impact, with total sales falling by nearly 12 per cent in the fourth quarter.

But the company did point out that these losses were partially offset by operational costs, related to fewer NHL opportunities. It said marketing and administrative expenses decreased nearly 17 percent during this time.

Sales to retail fell 13 per cent, or seven per cent excluding an extra week of activity in the 2011 period, citing hockey and higher taxes in Quebec as the key factors.

Molson Coor’s Canadian market share declined one share point on an estimated industry volume decline of five per cent, excluding the extra week of business in 2011.

The lockout affected all brands but Swinburn said Molson Canadian and Coors Light sustained the biggest hit because they are the largest brands in the brewer’s portfolio.

Canada’s underlying pretax income decreased 22 per cent to US$101 million. Hockey was an important factor for the league sponsor but he said the company can’t quantify the financial hit.

“If you look at the fourth quarter compared to the previous quarters it was worse than the rest of the year and the third quarter was worse than the first and second quarter. So obviously the NHL lockout did have an effect but it’s impossible to quantify exactly to what extent.”

Swinburn had vowed last year to seek financial compensation from the National Hockey League and said Thursday the company has reached a confidential agreement.

He declined to provide any details, saying any compensation won’t be specifically identified in its financial results.

The NHL declined to comment on agreements that may have been reached with other league sponsors.

“We don’t discuss the nature of our contracts with League sponsors,” said executive vice-president Gary Meagher.

In addition to being pleased with the return of hockey, Swinburn said the early response to its new Molson Canadian advertising has been strong and consumers like its new resealable aluminum bottles.

During the quarter, sales were also affected by a 20 per cent increase in Quebec excise taxes as of November, that reduced demand across the beer industry.

“It’s difficult to say precisely what that impact is but as price goes up consumers will buy less,” Stewart Glendinning, president of the Canadian operations told analysts.

Overall, Molson Coors earned US$60 million in the fourth quarter, or 33 cents per diluted share. Net sales grew 9.9 per cent to $1.03 billion, largely as a result of acquisitions. Worldwide beer volume was up 15.3 per cent to 14.1 million hectolitres.

The quarter included a number of special items for the multinational brewing company, including US$22.8 million for restructuring, a $6.5-million charge related for its portion of an IT writeoff at MillerCoors and US$38.3 million due to tax rate increases in Serbia.

The company, which reports in U.S. dollars, said its underlying after-tax income, after adjustments, was $126.1 million or 69 cents per share.

That compared to $173.2 million or 95 cents per share of net income and $937 million of net sales a year ago. Its adjusted underlying after-tax income was $176 million or 97 cents per share.

Molson Coors was expected to earn 64 cents per share in adjusted profits in the quarter on $1.07 billion of sales, according to analysts polled by Thomson Reuters.

Swinburn said it marked the fifth consecutive quarter that the company has beat industry forecasts.

“I think we’re just in a better position than we were this time last year,” he said, noting that its new business in Central and Eastern Europe has gained market share in all but a couple of countries.

For the full year, it earned $443 million or $4.45 per share on $3.92 billion of sales, down from $676.3 million or $3.66 per share on $3.5 billion of sales. Adjusting for one-time items, it earned $710.5 million or $3.91 per share.

Mark Swartzberg of Stifel Nicolaus maintaining a hold rating on the stock “given continued volume under performance and no evidence of this trend reversing.”

On the Toronto Stock Exchange, Molson Coors shares were down 39 cents at C$44.21 in afternoon trading.

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